Investor-state dispute settlement (ISDS) mechanisms, found in many investment treaties and trade agreements – allow foreign investors to sue governments in private tribunals if government policies affect their profits. Fossil fuel investors are increasingly using ISDS to challenge climate mitigation measures and seek significant compensation. This legal risk can delay climate ambition and drain public finances needed for the transition.
While COP30 saw two side events raising awareness of ISDS, the issue remains largely absent in international climate negotiations. With COP30 creating new opportunities, the key question now is whether COP31 can turn awareness into action on ISDS reform.
How COP30 outcomes can be leveraged to accelerate ISDS reform
- Initiatives to transition away from fossil fuels
At COP30, the Brazil Presidency called for a roadmap to transition away from fossil fuels. Although the final text failed to reference a roadmap, over 80 countries supported the initiative and 24 signed the Colombia-led declaration backing fossil fuel transition. Colombia and the Netherlands are building on this momentum by co-hosting the First International Conference on Transitioning Away from Fossil Fuels this April. ISDS features on the offical agenda as a key legal barrier. As work on fossil fuel transition progresses, the ISDS risks must be highlighted and addressed.
Many countries seeking to transition are highly exposed to potential ISDS claims. E3G analysis identifies the Netherlands and Colombia among the ten countries most exposed to potential fossil fuel-related claims. Without reform, companies could use ISDS to delay or profit from phase-outs. - Baku to Belém roadmap
The Baku to Belém Roadmap to mobilise 1.3 trillion annually for developing countries by 2035 explicitly identifies ISDS as a systemic barrier to equitable climate finance. The Brazilian and Azerbaijani presidencies will take forward the Roadmap throughout 2026, which can provide opportunities to further embed ISDS reform into concrete financing pathways, together with the new Veredas Dialogue on Article 2.1(c) of the Paris Agreement and Action Agenda at COP31. - Integrated Forum on Climate Change and Trade (IFCCT)
The IFCCT, launched by Brazil at COP30, offers another potential entry point. Designed as a unique forum for dialogue on trade and climate, states could potentially use the space to raise concerns and discuss pathways to reform ISDS. Its scope is currently undergoing consultations.
Brazil and Australia, who are leading the consultations, are critical of ISDS. While not yet determined, if Australia assumed a co-chair role alongside Brazil, this could strengthen the prospects of placing ISDS reform on the IFCCT’s agenda.
How Türkiye and Australia can accelerate change at COP31
COP31 will be hosted by Türkiye in Antalya, with Australia assuming the role of President of Negotiations. This positions both countries with unique potential to elevate the ISDS reform agenda globally.
Since 2022, Australia has taken a principled stance against ISDS, committing to exclude ISDS in any new treaties and pursue reform of existing ISDS mechanisms. This reflects its own experience with costly disputes – including the Philipp Morris case challenging tobacco plain packaging laws, and four claims brought by an Australian billionaire seeking a combined $420 billion AUD, including challenging climate-related measures. E3G’s analysis shows Australia is the fifth most exposed country to ISDS risk from fossil fuel assets.
Australia is currently renegotiating investment treaties with Türkiye, Pakistan and Argentina to remove or reform ISDS and has begun consultations to review several treaties with European countries. Türkiye’s engagement in these talks suggests potential openness to change their stance. A successful renegotiation ahead of COP31 would demonstrate Australia’s and Türkiye’s joint leadership on this issue.
Recommended actions for Türkiye and Australia at COP31:
- Prioritise ISDS reform: Australia and Türkiye should recognise ISDS as a key barrier to climate action and integrate ISDS reform into COP31 key initiatives, including fossil fuel transition efforts and Action Agenda. They could also push for an explicit reference to ISDS in the COP31 negotiated cover text.
- Mobilise political commitment: Australia and Türkiye should initiate a plurilateral declaration at COP31 on aligning investment treaties with climate goals. Countries that have rejected or been critical of ISDS, such as Brazil, Bolivia, South Africa, Colombia, and New Zealand may be particularly interested in supporting such an initiative. As a step further, they could push for a formal coalition of countries to collaborate to remove or reform ISDS.
